Taiwan's manufacturing prowess a perfect match for Israeli tech innovation

Taiwan is a global powerhouse in the information technology (IT) and electronics sector and is regarded as the most technologically advanced computer microchip maker in the world. In fact, two Taiwanese companies - TSMC and UMC - hold 65% of the global market share for chip manufacturing. It also has the 20th largest economy in the world according to gross domestic product (GDP), almost four times the size of that of Israel. So how is it that Taiwan was ranked only 19th among all countries as an Israeli export recipient in 2018?

Israel's startup nation expertise is seemingly perfectly complementary to Taiwan's manufacturing prowess, but trade between the countries over recent years has been stagnant, standing at a little over $1.5 billion per year. The fact Israel has no diplomatic relations with Taiwan (Republic of China), which recognizes Israel, but does not officially conduct relations due to Israel's recognition of the People's Republic of China, is likely the main reason behind the sluggish economic trade.

Taiwan is, however, keen to change that, opening last year a branch of the Taiwan External Trade Development Council in Tel Aviv, known as Taitra, specifically aimed at promoting technological collaboration and innovation activities between Taiwanese companies and the Israeli startup ecosystem.

"Israel and Taiwan share quite a lot in common - they are both island economies, limited in natural resources, and both have chosen to focus on innovation as a means of maintaining global competitiveness," Emma Yang, Director of Taitra's Tel Aviv office told CTech. "The result is two highly developed technology ecosystems. Yet, each has different qualities and strengths. While Taiwan demonstrates high-quality manufacturing and leading engineering capabilities, Israel exhibits an inventive start-up R&D environment, developing cutting-edge technologies and solutions.

“Israel and Taiwan’s tech industries complement each other in a rather strategic way. Taiwanese companies specialize in hardware platforms and integrated solutions, while Israel’s software nation mainly develops point solutions," noted Yang.

Yang believes this opens the door for partnerships between Taiwanese hardware corporations searching for added value to their products and Israeli software companies looking to integrate their solutions. This can also serve to promote Taiwan's more general aspirations to take a larger part in the global tech ecosystem and advance as a leading innovation hub. In addition, with Taiwan being a key manufacturing hub, Taiwanese manufacturers are great potential partners for validating and integrating Industry 4.0 solutions developed in Israel.

Yang believes Taiwan can help Israeli companies go from the startup to the scale-up phase. “For Israeli companies, Taiwan can be a technological and strategic hub for scaling-up by providing access to all stages of the supply chain. Taiwan has a complete supply chain for many hardware tech products - from the smallest of chips and component manufacturers, through product design and assembly companies, to a large variety of end-product OEMs and brands," Yang said. "In electronics, Taiwanese companies are the primary manufacturers of top world-leading brands' products, such as Apple iPhones and MacBooks, GoPro cameras and hardware by Microsoft, Dell, HP, etc. In many cases they are also the developers and designers. Not to mention global Taiwanese brands as Asus, Acer, D-Link, AOC, HTC, and others. Collaborating with Taiwanese companies will place Israeli companies on the global stage and help their scale-up and growth."

Taiwan is very similar to Israel in many economic indicators and rankings, such as macroeconomic stability, level of competitiveness and credit rating and its strategic location means it can act as an excellent entry point for Asian markets, according to Yang.

"The Taiwanese are highly adoptive of new technologies and can serve as a pilot audience for adjusting and accommodating products before expanding to other Asian countries," she explained. "Taiwanese corporation such as Advantech, Compal, Quanta and Taiwanese brands and system integrators working throughout Asia for many years can provide access to their regional customer base, especially industrial clients. Furthermore, the robust relations Taiwanese companies have with global companies are also a valuable asset for penetrating global markets.”

Taiwan has a population of around 24 million, but remarkably has only registered 529 cases of coronavirus in total since the start of the outbreak, with seven people in all dying as a result of related complications. One of the reasons for that seems to be Taiwan's past experiences with spreading epidemics, meaning it was highly prepared for Covid-19. It also implemented very strict policies from the start, with the Taiwanese people on their end, being extremely cooperative and responsive to these policies. That helped the country avoid any sort of lockdown and unemployment has barely risen.

Geopolitics has played a role in the Israel-Taiwan relationship to date and will certainly affect it going forward, for example the ramifications of the U.S.-China trade war. The effects of the trade war, together with Taiwan’s successful handling of the Covid-19 pandemic have re-positioned Taiwan strategically. Taiwan has ongoing economic relations with China, and Israeli companies can work with both countries. In some ways, Taiwan has actually benefited from the trade war. For example, some importers have switched their source from China to Taiwan, with as much as $17 billion of Taiwanese investments abroad pulling back and returning to Taiwan (2019-2020 official estimates). Yang noted that many Taiwanese companies are looking for new venture opportunities for growth and expansion around Taiwan’s industries. She said this has also created a strong economic momentum for collaboration and establishing technology partnerships.

Unlike Taitra's other 63 branches, which are focused on promoting Taiwanese export and trade, the Tel Aviv branch - Taiwan Trade and innovation center - was the first to be established by Taitra’s management with the vision of promoting technological collaboration and innovation activities. During the past year the team has been working on learning both countries' strengths, sharing their insights regarding potential opportunities for collaboration, and assisting Taiwanese companies to engage with the Israeli startup ecosystem.

According to Shany Kfir, business development manager at Taitra's Tel Aviv office, Taiwan presents a great opportunity for Israeli startups. "For any Israeli company or startup that develops a technology that could be integrated on a hardware platform, Taiwan is the place to go," he said. "Taiwan is where the most advanced manufacturing solutions come to life and Israel's point solutions in Industry 4.0 could be a great complementary piece both for Taiwan's ecosystem and also for the entire global ecosystem of manufacturing."

So why hasn't the collaboration between Israel and Taiwan picked up to date? Yang believes awareness is a main issue, one which she is trying to solve.

“Unlike similar Asian countries, Taiwanese companies have not yet established many partnerships and innovation activities in Israel. There are a few collaborations, with Foxconn, Wistron and MediaTek, for example, and we identify that Israel is getting more traction than before, but it is still very limited," she said. "One main reason we identified is the lack of awareness from both sides. A second reason could be that Taiwan’s industries and innovation activities were traditionally carried out in-house and tied to requirements set up by their global clients, due to the OEM/ODM business model. Yet, in recent years we see a shift and a growing trend of Taiwanese companies opting to distinguish their products, and optimize their processes - objectives in which software, IoT and connectivity play a strategic role. These industry trends show us there is great potential for growing collaboration and partnerships between the countries."